Full Employment? No, not Quite

Explaining the Election Series…

December 2, 2016 (San Diego) There are reasons why voters took to the populist message and would have voted for Bernie Sanders if the Democrats had not sunk him. They do not believe the economy is out of the woods. So first let’s look at the employment numbers.

The Federal Government issued the unemployment rate, and the official November rate of 4.5 percent is very close to full employment. This adds to the mystery, why did people vote for change when we have almost full employment? It is not such a mystery once you start looking at another piece of data. This is the U6 number, which adds discouraged workers and those working part-time. That number is down, but it is still at a significant 9.5 percent.

Granted, it has come from a high of 17.1 percent in March of 2010, It is also lower than the 1995 number of close to 12 percent. These data points matter.

There is another problem, and this is why workers felt so discouraged and voted for change. It is the type of employment that is being created that is also a problem. We have moved, and it is not just the United States, from a high wage industrial economy to a low wage service economy. This has cratered the economy in the middle-income sector, leading to either a high income or a low-income sector.

 

The macroeconomic trends are clear when you look at the real big picture,

 

u6-unemployment-rate-2016-12-02-macrotrendsWe are not nearly close to full employment, and the U3, the official unemployment rate is not giving us the full picture. There is more, and that has to do with pockets of high levels of poverty. Also the fact that poverty has remained stubbornly the same for decades. It does not matter if we had a war on poverty or the modified welfare act of the Neoliberal state that Bill Clinton helped build.
These pockets are not just in the rust belt. And the National Center for Children in Poverty gives us horrific statistics for child poverty. They are not just limited to the midwest, though. In California, Los Angeles, has a child poverty of 33 percent, or Fresno, at almost 40 percent.

 

But the Midwest, in particular, the once industrial heartland of the country, has been in trouble, for now, decades. It has been in decline, and that decline has not stopped. The Economist had a good piece on this in 2011.

 

Their decline started 40 years ago and has accelerated over the past decade. In 1970 employment in manufacturing in America, much of it in the Midwest accounted for about a third of the labor force. Since then its share has dropped continuously until, in 2010, it accounted for around a tenth of workers. It is now recovering in places, but only in baby steps.

 

What the author did not point out is that 40 years ago is when two things happened, the first is that in 1973 we saw evidence of decoupling between productivity and wages. This is a common finding that has led to a rise in income inequality that now looks like what existed just before the 1929 crash. This is from a paper by the Economic Policy Institute

 

 Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity. In fact, hourly compensation has almost stopped rising at all. Net productivity grew 72.2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8.7 percent, or 0.20 percent annually, over this same period, with essentially all of the growth occurring between 1995 and 2002. Another measure of the pay of the typical worker, real hourly compensation of production, nonsupervisory workers, who make up 80 percent of the workforce, also shows pay stagnation for most of the period since 1973, rising 9.2 percent between 1973 and 2014. Again, the lion’s share of this growth occurred between 1995 and 2002.

 

It is also critical to note this part. Most of the growth in this disparity occurred between 1995 and 2002. Those years coincide with the implementation of many free trade agreements, starting with the North American Free Trade Agreement (NAFTA). In other words, neoliberal policies played a role in this.

 

Then there are the voters who stayed home. This was mainly seen in the Midwest, but the Obama coalition collapsed. More people stayed home than turned out for Trump. Why did they stay home? They could not stomach voting for Trump, but they could not stomach voting for the continuation of neoliberal policies either. The above economic numbers explain partly why it collapsed.

 

But if you think this was due to just white working class racists voting for Trump, you are making a huge mistake. Democrats also lost the vote of indigenous people, blacks, and Latinos. This was even in states such as Pennsylvania, where turnout was significantly lower, and there are no voter suppression laws at play. You could make a case that this happened in both Ohio and Wisconsin, however, but even that case would be weak at best.

 
There are other indicators that Democrats are getting rejected. They include losing both Houses, and over 1000 legislative seats across states, as well as governorships. Americans are now blaming Democrats for the weakness in the economy. All the happy talk of Wall Street doing well, and almost full employment are not matching the experience of many Americans. They either chose to stay home or in some cases voted for the other guy. The picture of a full on working class revolt is muddled by a coalition that chose to stay home.

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